Tuesday, September 30, 2008

Fiscal Crisis, Part II: The Ongoing Disaster

Since I was able to muster my last post on this topic on September 17, obviously, a lot has happened including our latest Black Monday wherein the Dow Jones Industrial Average tanked 777 points the last time I was able to look. I've spent a good deal of time since the 17th trying to stem the red ink in my portfolio which, frankly, has begun to eliminate a fairly large percentage of the capital sitting in my various IRA rollovers which are now under my control due to the layoff I experienced in July, detailed in earlier posts.

As a former professional investor, I'm not going to cry about this. I should've sold off more positions when I had the chance, and now I have to ride the barrel over the falls and try to enjoy the thrill of a seemingly endless drop with unknown consequences below.

Problem is, I'm not the only one experiencing this unwelcome ride, as the first wave of Baby Boomers watches as the Wall Street and Congressional booboisie eliminate a lifetime of savings and any chance of recovering a retirement fund before death, so great is the damage becoming.

I indicated in an earlier post that systematic rampaging short selling of the financials by large investors, particularly hedge funds--and very possibly aided and abetted by other sinister forces that could range anywhere from the now largely-silent George Soros (who, lest we forget, badly damaged the British pound singlehandedly in the early 1990s) to foreign governments who wish us ill--has resulted in the ongoing and apparently systematic destruction of the American banking and credit system. And it's happening like Chinese water torture, too, with each weakened financial institution being slammed down by the short sellers, and then taken out back and shot with the complicity of the Federal government which rightly fears a run on the financial system by the public, a la the 1930s.

The SEC thought they solved the problem at least temporarily by re-imposing their "temporary" ban on short selling in the financials. Well, that worked for about a day. A better idea would be reinstituting the uptick rule they abandoned last summer, an amazingly stupid move for which we continue to pay. Eliminating the rule, which dates from the 1930s, has allowed large institutions to short targeted stocks into oblivion before the average investor even knows what's happened. You used to have to short a stock after an "uptick." I.e., a buy transaction. This has the effect of slowing the motion of a gang of shorts rather considerably, allowing time for cooler heads to prevail and allowing appropriate responses from responsible parties if things get too intense.

Without this traditional circuit breaker, large institutions are back to what they used to do before the rule existed, with one firm shorting a boatload of stock A and then effectively passing the baton to a second firm, and then a third, all forming a sort of "short club" that eventually leaves the rich Harvard econ grads even richer, having profited by little guys who believe in the market but don't watch it every minute.

But the crisis we're in has been becoming more complex than merely having to deal with the shorts. So many bad things have happened so quickly that it's tough to follow them. What I'd like to do is slice and dice some of this stuff into bite sized pieces you might be able to understand if you're not a pro.

The only person currently doing this kind of stuff is Jim Cramer, a former professional hedge fund trader himself. Today's "professionals," the ones who've helped get us into this mess, like to deride Cramer as a clown, but he's been telling it straight, save for his latest jabs at the Republicans for allegedly having caused all this. While an awful lot of inarticulate Republicans have been behaving like boobs on this issue, it's actually the Dems who created the condition for the current problems as we'll explain.

The story actually began, as many bad things do, not with the election of George W. Bush, but with more sneaky little tricks from the actual villains of the current mess, Bill Clinton and the Clintonistas who actually started the subprime mess in an attempt to buy votes and provice cushy jobs in the financial world for loyal Democrat pols. I'll discuss this history briefly in my next post, then move quickly on to the currently unfolding Act in this play, which could very well bring us 1929 redux. And maybe it's already started.

And you'll surprised to find out that very little, if any of it, is Bush's fault. Who knew?